As owners of about two dozen large, quake-damaged office buildings in the San Fernando Valley struggle to make repairs and reopen, many of them are racing against a deadline: July 17.
More than just the six-month anniversary of the Northridge earthquake, it marks the day when many tenants of these buildings can exercise an escape clause and walk away from their five- and 10-year leases. In some contracts, landlords have even less than six months to fix their properties before tenants can break rental agreements.
Some owners are unlikely to meet their deadlines because of delays in securing Small Business Administration loans, insurance payments, construction permits and contractors. But not all displaced tenants are sympathetic. Complaining about working out of boxes in their homes or tight temporary offices, some tenants say they won't wait more than they're required to before moving permanently elsewhere.
"It's a waiting game to see which (building) owner comes back and when," said Cathy Scullin, a broker at Zugsmith-Thind, a commercial real estate firm in Encino. And if they do, she asked, "do they come back intact, or crippled because they lost their tenants?"
Neal Tenen is one of seven lawyers who shared offices at the Sherman Oaks Atrium at Magnolia and Sepulveda boulevards, before the earthquake forced them to scatter and set up makeshift offices, mostly in their homes.
Tenen says he has been a tenant at the Atrium for seven years. "It's a super-nice building," he said of the four-story structure with hundreds of windows, many of which were shattered by the quake, and an atrium that is now obstructed by construction scaffolds. But if the 96,000-square-foot building isn't repaired by mid-July, as required under his lease, Tenen says he may not come back.
The city's Department of Building and Safety estimated the Atrium's structural damage at $500,000.
Tenen and other lawyers are talking about buying a small office building of their own. "It's going to be a close call" whether the owner meets the deadline, he said. "There could be a mad rush to finish."
The owner of Sherman Oaks Atrium, Advent Realty Limited Partnership, declined to comment. But the Atrium's leasing agent, John Sabourin of Beitler Commercial Realty Services, says the owner had earthquake insurance. Sabourin says the building was 80% occupied before the quake and will reopen in mid-June, meaning tenants will have to return under their leases or face a possible lawsuit.
Before the 6.8-magnitude quake, tenants gave little thought to the fine print in leases called the "damage and destruction" clause. But the clause typically gives landlords three to six months to restore their properties after a disaster, said Bill Inglis, a broker with CB Commercial Real Estate Group in Sherman Oaks. Attorneys say tenants signing new leases now want shorter time limits for landlords to make repairs.
Property owners are keenly aware of these deadlines, but their efforts to beat them are running up against delays caused by heavy demand for construction work and governmental services.
Larry Berman is waiting for an SBA loan to rebuild the Scotty Building on Ventura Boulevard in Sherman Oaks. The Scotty Building is actually two structures that are connected, totaling 74,000 square feet. But one of them, a two-story structure, burned in a fire caused by the Northridge quake; the other five-story building reopened a month ago after smoke damage had been cleaned up.
Berman says his insurance policy covered the $3-million damage, and his plans are to build a new two-story structure. But he says that building won't be finished for another year. Still, Berman says he isn't worried about reopening without tenants because he expects plenty of tenants dislocated from the quake to be in need of good office space; plus, he claims many of his tenants will return, even after a yearlong wait.
Brokers agree that office space in the Valley is tightening: the office vacancy rate dropped to under 10% in the first quarter, from nearly 14% in the previous quarter. One big reason: 25 major office buildings in the Valley were severely damaged by the quake, according to a survey by the real estate firm Zugsmith-Thind. The survey didn't count office buildings smaller than 20,000 square feet, or headquarter buildings such as the Hamburger Hamlet building in Sherman Oaks--part of which was ripped apart by the quake and remains empty. The survey also didn't include the scores of retail shops that were ravaged by the temblor.
One high-rise that beat the six-month deadline was the Tower, a 13-story building in Sherman Oaks on Ventura Boulevard. But it took more than $1 million of insurance money and a construction crew of 200 who worked round-the-clock to get the building reopened in late March.
The 160,500-square-foot Tower is one of seven office buildings in the Valley owned by pension funds that are managed by TCW Realty Advisors in Los Angeles. On Jan. 17, the Tower was trashed: Water pipes burst, doors jammed, partitions collapsed and many deep cracks ran along the building's shear walls like lines on the palm of a hand.
Cindy Leuty, who manages the Tower for TCW, said it cost several million dollars to complete the repairs. TCW manages dozens of buildings nationwide, and that gave it an edge in hustling up contractors, Leuty said. Seismic engineers were at the Tower a few hours after the quake, and TCW had quick access to specialists who apply epoxy, a strong adhesive used to fill cracks in concrete walls, which has been in heavy demand lately.
Leuty said the Tower had to hurry because offices were leased at $1.75 to $1.90 per square foot, so the building was losing about $275,000 a month in rent. The Tower was 95% occupied before the quake, but it isn't clear how many tenants will return. Leuty said tenants are coming back slowly, but some businesses that were struggling before the quake will probably never return. "I don't think we really know for sure," she said.
Tower tenants like Beitler, which had squeezed workers in cramped offices in Encino for two months, say they are glad to be back at the Tower. So are nearby retailers, who have lost customers who worked in the structure.
"We are very, very hurt," said Pam Chinvaraj, a longtime waitress at the Aajak Thai restaurant, a few steps from the Tower, which counted on workers at the building for much of its lunch business. "We're really happy they're coming back."
But many businesses who were tenants of quake-damaged buildings remain in limbo. "We're still working out of boxes," lamented Irv Kornblum, whose accounting firm has moved twice since the AIC Plaza in Sherman Oaks was hit by the quake. "We lost two weeks time just unloading and loading boxes," he said. "And this during the busy tax-preparing season." Kornblum says his firm has 2 1/2 years left on a five-year lease at the AIC Plaza, and one month left on a three-month lease for his current office in North Hollywood. "I'm not really sure where we'll end up," he said, adding with a tinge of resentment that the six-month clause in his lease is a "stingy point" and too long.
Don Parker, whose American Insurance Consultants Inc. owns the AIC Plaza, says his 80,000-square-foot building will be ready by June 1. Parker said he has no debt on the building, but he would not say how much damage his building sustained or whether he had earthquake insurance. City Building and Safety Department officials put the repair estimate at about $1 million. "Everybody will be coming back," Parker said, adding that it was costing him a "small fortune" to make repairs.